Sharp Staff Layoffs Needed to Begin Revival says Foxconn Founder

While pledging that wages would rise and profit-sharing would again be the norm, Foxconn founder Terry Gou said there would have to be layoffs at Sharp Corp to turn around the ailing Japanese company.

"Unfortunately, a close review of the company's operations makes it clear that the level of inefficiency throughout Sharp means that a turnaround ... can only take place if there is a reduction in costs, and that comes with a very regrettable need to reduce Sharp's workforce," Gou wrote in an open letter, seen by Reuters, to Sharp staff late on Thursday.

Annual losses trebled from a year earlier for Sharp this year.

As the Japanese display maker seeks a return to profit in the face of slowing smartphone sales, Taiwan's Foxconn, the world's largest contract electronics manufacturer, has battled to seal a $3.5 billion deal to give it a two-thirds stake in Sharp.

While not providing figures, the letter said staff cuts would be carried out "responsibly and sensitively." Cuts could total 3,000 in Japan, and more when Sharp's global operations are included, Reuters reported citing a person familiar with the matter.

Tai Jeng-wu, Foxconn's vice chairman and the newly-appointed CEO at Sharp as well as the all Sharp employees received the personal note from Gou, Foxconn confirmed.

Becoming the first outsider to lead a company that started out making belt buckles and mechanical pencils a century ago Sharp named Tai to succeed Kozo Takahashi.

Running of the vast operations of Foxconn at Shenzhen in China is included in Tai's 30-year Foxconn career. People at Foxconn told Reuters that he also played a key role in the Sharp stake negotiations.

"Tai is No.2 at Hon Hai. He speaks Japanese. He was selected from a comprehensive perspective," Takahashi said at an earnings briefing while referring to Foxconn by its formal name, Hon Hai Precision Industry Co.

Takahashi said that Sharp aims to finalize the stake sale to Foxconn by the end of June, earlier than an initial Oct. 5 deadline and added that Tai will be one of nine new board members at Sharp.

A turnaround at Sharp, which has struggled even after two bank bail-outs is underscored by the Gou's letter following last month's signing of the stake deal.

The buyback of 25 billion yen ($230 million) worth of preferred shares that Sharp issued to a corporate turnaround fund last year in exchange for a bail-out will personally be guaranteed by the billionaire Foxconn founder. A merit-based stock reward program for Sharp employees would be sped up by his move, Gou said.

A person familiar with his thinking told Reuters that Gou believes profit-sharing is key to retaining talent.

"I can also assure you that the wage cuts and reductions in year-end bonuses are a thing of the past," Gou wrote to Sharp staff. he also added that as of this month, pay and annual bonuses would return to their original levels.